Politics and the Geographic Allocation of Public Funds in a Semi-Democracy. the Case of Ghana, 1996 - 2004.∗

Politics and the geographic allocation of public funds in a semi-democracy. The case of Ghana, 1996 - 2004.∗ Pierre André,y Sandrine Mesplé-Sompsz December 17, 2010 Abstract The body of literature on purely democratic countries can sometimes fail to explain the behavior of government in semi-democratic African countries. Empirical and theoretical political economic papers nd that public funds target ruling party supporters and swing districts. Our results, however, suggest that the opposite was true of Ghana. We observe that pro-government districts received less public investment when the NDC was in power. We posit that this nding is partially driven by the government's will to curry favor with opposition politicians. Indeed, in addition to pursuing its electoral objectives, the government of an emerging democracy may fear political instability and keep the lid on potential unrest by bargaining with opposition leaders. Our analysis also shows that, when controlling for votes and other covariates (including wealth, urbanization and density), public goods allocation is not driven by ethnic group targeting either. Keywords: Public goods, Elections, Politics, Ghana. JEL classication codes: D72, O55, R53. ∗We thank the AFD (Agence Française de Développement) for its contribution towards the research for this paper. We also thank Thomas Bossuroy for the election data he collected in Ghana and aggregated at district level. Our acknowledgements to Sylvie Lambert, Denis Cogneau and seminar participants at the Oxford CSAE conference and Paris LEA seminar for helpful discussions and suggestions, and to Ted Miguel for his help with data collection. yUniversité de Cergy-Pontoise, THEMA, F-95000 Cergy-Pontoise, [email protected] zInstitut de Recherche pour le Développement (IRD), UMR 225 DIAL, Université Paris Dauphine. E-mail: [email protected] 2 1 Introduction: Political motives and public funds allocation, a short review of the literature A growing number of developing countries have become (fully or partially) democratic since the 1990s. The impact of these political changes on the development process is a major issue in the economic debate. Most of the papers that analyze the links between these political changes and economic performance in developing countries are inspired by models designed for developed countries. This is particularly true of the geographic allocation of public funds (Diaz-Cayeros, 2008; Miguel and Zaidi, 2003; Schady, 2000; Moser, 2008; Case, 2001; Cole, 2009). Usually, a democratic government gunning seeking re-election will have incentives that target two groups of people.1 The rst kind of targeted transfer is for the incumbent government's core support group, and is sometimes called machine politics: politicians reward their core supporters by means of the preferential allocation of public goods (or private transfers). Theoretically, Dixit and Londregan (1996) predict this will happen mainly if the leading party is more ecient at providing public goods to its core support group than to opposition supporters. Most of the abovementioned papers on developing countries point up this mechanism.2 The second kind of targeted public transfer is explained by the swing voter model. It comes about mainly if some voters have strong preferences for one of the political parties. In that case, public goods provision targets the median voters, who are the politically central group and could vote for either party. A number of empirical papers have pointed up such a mechanism (like Dahlberg and Johansson, 2002; Diaz-Cayeros, 2008; Cole, 2009 and Banful, 2010 respectively in Sweden, USA, India and Ghana). Levitt and Snyder (1997) mention that MPs may step up their eort to obtain government funds when they are seeking re-election. Therefore, MPs may make more of an eort in politically central districts, so that government spending is higher in these districts. This would generate a negative correlation between the votes for the incumbent MP at the last election and government spending. This is therefore a version of the swing voter model for election with constituencies (with politically central constituencies instead of 1Earlier theoretical studies (including Downs, 1957 and Bowen, 1943) have been summarized and extended by Dixit and Londregan (1996). 2See, for instance, Levitt and Snyder Jr (1995) and Joanis (2008) for empirical evidence of public funds targeting the government's core support group in developed countries. 3 politically central voters). Although this literature provides relevant insights into political life in established democracies, we believe it may well fail to describe some semi-democracies, and some African countries in particular where the political institutions are much weaker. This assertion is related to some recent political economic literature. North, Wallis, and Weingast, (2009a, 2009b) assert that social orders are dierent in developing countries and developed countries. They explain that the social order of developing countries is a limited-access order (or natural state). By contrast, an open-access social order has long been in place in most developed countries. In a natural state order, personal relationships among the elite form the basis for political organization and constitute the grounds for individual interaction. A natural state is ruled by a dominant coalition; people outside the coalition have only limited access to organizations, privileges and valuable resources and activities, (North, Wallis, and Weingast, 2009b). In these circumstances, elections typically do not provide an institutional, competitive environment. This prevents political competition from conveying information to politicians and constraining them. Therefore, public goods are provided personally: governments are inclined to use public goods as a means of rewarding members of the elite coalition. This mechanism may make it pointless to target public funds on specic groups of people for electoral purposes. In addition, in a semi-democratic country, the dictatorial mechanisms may be relevant for the incumbent government and its opponent(s). Indeed, dictatorship (or rebellion) is a potentially relevant alternative for them. This is particularly true when the democratic political reforms are recent and undertaken by former dictators. The literature on post-conict political economics denes conditions whereby a peace equilibrium occurs (Esteban and Sákovics, 2008; Hirshleifer, 2001; Azam, 2006). In particular, Azam (2006) builds a model with reference to African countries that denes conditions for a peaceful equilibrium in a bargaining game between dictators and their opponents. In his model, peace is systematic when the opponent faces high opportunity costs of conict or when the opponent's military technology is too poor. When the incumbent faces high opportunity costs of conict, but the opponent does not, there may be coordination between them to avoid conict. The incumbent may (partly) commit to giving a transfer to the opponent conditional on peace, which works if this promise is credible enough. A common feature of the framework proposed by North and his co-authors and by the post-conict political models is that personal relationships are central to an understand- 4 ing of the social and economic order in some developing countries (and/or semi-democratic countries). In both cases, the government makes compromises with the opposition elite. In the former case, this is due to personal relationships between elite members. In the latter, it is due to military threat. This paper focuses on Ghana to show that political mechanisms in developing countries may very well be counterintuitive. We nd that, while Jerry Rawlings was President (or at least between 1998 and 2000), the accumulation of publicly provided infrastructures was greater in districts voting for the opposition. This was due to politically sensitive districts - districts where national opposition leaders had been general election candidates - and districts in the capital area. We nd this result to be in line with the natural state social order model described by North et al. (2009a) and with the bargaining mechanisms found by Azam (2006) in an emerging democracy. In the late 1990s, Ghana displayed conditions conducive to such a mechanism. First, Ghana had experienced political instability prior to 1982, so the threat of political instability was credible and bargaining between the President and his opponents was equally credible. Second, the former dictator, Jerry Rawlings, had been President for more than 15 years at that date. This may have made it easier to coordinate to nd a peaceful equilibrium with his opponents and with all the members of the elite. Indeed, the incumbent leader's commitment to give a transfer to the opponent has more credibility if he has already made such a transfer in the past. This also makes it less likely for the opposition to win subsequent elections, as African opposition parties rarely win elections when the former dictator is still in charge. Lastly, regular presidential and general elections have been held peacefully every four years since 1992. Ghana was therefore an emerging democracy between 1998 and 2003. To our knowledge, one other paper analyzes the political motivations of public fund transfers in the Ghanaian case. Banful (2010) studies an intergovernmental transfer: the District Assemblies Common Fund (DACF). The DACF is supposed to be allocated in keeping with a national formula, which is

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